Mexico Planning to Loosen Foreign Investment Rules

Mexico announced a long-awaited loosening of its restrictions on foreign investment today, extending to the rest of the world many of the rights that will be accorded to American and Canadian concerns under the North American Free Trade Agreement.

Under new foreign investment legislation sent to the Congress by President Carlos Salinas de Gortari, Mexico will allow foreign companies to own coastal and border property for the first time. The law, which is expected to be approved without change, will maintain some restrictions on the ownership of residential property in those areas by non-Mexicans.

By increasing the stakes that foreigners can hold in some industries and eliminating some of the onerous rules under which they have to operate in others, the new law is expected to make Mexico more attractive to investors in areas like tourism, mining, airlines and petrochemicals.

By consolidating and codifying many changes the Government had already made in practice, the law will also provide more security to foreign investors in other parts of the economy, officials say.

Apparently encouraged by the news, the Bolsa de Valores, Mexico's stock exchange, jumped 3.1 percent today to close at 2,231.14 points.

The new statute touches few areas of the economy that were not already open to foreign investors in practice. It generally avoids industries like oil, banking and television, in which the Salinas administration continues to protect Government or private monopolies.

And even with foreign investment expected to reach a record level of more than $10 billion this year, some economists and business people said they thought the law might have to be modified further to attract all of the foreign capital that Mexico will need to cover its deficit in trade and services and resume high rates of growth.

"It's anticlimactic at this point," said Rogelio Ramirez de la O, an economic consultant in Mexico City. "It's really inappropriate for an open economy to even have a foreign investment law. This law should have been introduced four years ago, and now they should be getting rid of it." Incentives for Growth

The new law comes amid a series of Government steps to try to stimulate investment and quicken growth in the sluggish Mexican economy after the trade pact's approval.

The trade agreement will start to open the Mexican financial-services market to American and Canadian companies when it takes effect on Jan. 1. The Government last week authorized two new banks, three savings and loans, four mortgage companies and 200 new credit unions.

Seeking to lower the high interest rates that have strangled many small and medium-sized businesses in the last two years, a state development bank, Nacional Financiera S.A., cut its rates 2 percentage points, from almost 25 percent.

Mexican officials had been circulating drafts of the new investment law for more than two years. They held back a final version in case the North American accord was rejected by the United States, forcing them to make bigger concessions to attract enough foreign capital to cover a current-account deficit that ballooned to almost $23 billion last year. Writing Practice Into Law

The law would strike down a 20-year-old statute that was once a bulwark of Mexican economic nationalism. Especially since 1989, though, when the existing law was last modified, the Government had been disregarding many of its provisions in practice.

Where legal requirements had not been superseded by attendant rules and regulations, the Government's regulatory agency, the National Commission on Foreign Investment, was often willing to override them on a case-by-case basis.

"I don't think people were having a lot of problems coming in here," said Juan Suberville, the chief executive of Kmart Mexico, a subsidiary of the American retailer that set up shop here last March. "We registered with the investment commission, presented our plan, and it was authorized in a week."

The new statute is likely to be more important for smaller companies that might be interested in the growing Mexican market but lack the money, lawyers and consultants that are often needed to transit the maze of Mexican regulations.

"For smaller and medium-sized companies that want to come into Mexico, just consolidating and simplifying the rules ought to have a big effect," said John E. Rogers, the resident partner in Mexico City for Carlsmith Ball, a Honolulu-based law firm that advises many American businesses.

Except for part of the financial- services industry, in which the trade agreement gives only American and Canadian banks access to a 6 percent share of the Mexican banking and brokerage markets, the new law will open to all foreign investors virtually all of the areas opened to Americans and Canadians under the North American agreement.

As contemplated under the accord, the new law will also eliminate many of the so-called performance requirements that have restricted foreign companies in many ways, including their transfer of money and technology in and out of the country.

Paralleling other benefits of the trade pact, the Government proposed separate legislation today to guarantee prompt and fair compensation to any business that it might expropriate.

Besides the reduction of tariffs on trade, then, what the new foreign investment law leaves as the principal benefits to American and Canadian concerns doing business in Mexico are treatment equal to that of Mexican companies, the unrestricted repatriation of profits, and, most important, special panels to resolve any legal or commercial disputes.

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A version of this article appears in print on November 26, 1993, on Page D00011 of the National edition with the headline: Mexico Planning to Loosen Foreign Investment Rules. Order Reprints|Today's Paper|Subscribe